Ithaca Energy Inc.
TSX VENTURE : IAE
AIM : IAE

Ithaca Energy Inc.

August 22, 2007 10:02 ET

Ithaca Energy Announces Second Quarter 2007 Results and Organizational Changes

LONDON, UNITED KINGDOM and CALGARY, ALBERTA--(Marketwire - Aug. 22, 2007) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Ithaca Energy Inc.(the "Company")(AIM:IAE)(TSX VENTURE:IAE)a Canadian independent oil and gas company with exploration and development assets in the UK North Sea, announces its results for the second quarter ended June 30, 2007 and a reorganization of its management team.

Highlights

Operations:

- The Company successfully drilled its 12/21c-6 well on the 90%-owned Jacky (formerly known as Basil) prospect in the Beatrice area of the Inner Moray Firth and suspended it for future re-entry and production.

- Development plans for a one well tie-in to the Beatrice facility are under way and first oil production could be realized in the second half of 2008. Under a farmout agreement, Ithaca paid for 85% of the well and retained a 90% interest.

- The Company is preparing to drill the second well at its 70%-owned oil discovery at Athena prior to subsequent application for field development.

- Agreement has been reached with the owners of the adjacent Phyllis discovery to evaluate the feasibility of unitization and development of both fields.

Financial:

- Strong cash, accounts receivable, and pre-paid deposits position of US$48 million

- Net income of US$586,941 due to unrealized foreign exchange gains

- 82.9 million common shares outstanding (June 30, 2007)

Ongoing Operations:

The expeditious development of the Company's discoveries at Athena, Jacky and Barbara are fundamental to Ithaca's plan to generate production at the earliest opportunity. At present first production is anticipated from Jacky in late 2008 with Athena to follow in late 2009. While proceeding with the process of bringing the three current discoveries on stream, the Company is also making preparations to commence the drilling of certain exploration properties. Under a farmout arrangement, the Morpheus prospect in the Southern Gas Basin will be drilled in the first quarter of 2008.

Management Changes:

Neill Carson, Chief Operating Officer, has resigned from the Board of Directors and will be leaving the Company to pursue other interests. Lawrie Payne, Chief Executive officer, will assume the responsibilities of COO until a replacement is secured. In order to facilitate an orderly transition, Neill will remain with the Company until October 31, 2007 and thereafter as a consultant on an as needed basis.

Commenting today, John Summers, Chairman of Ithaca, said: "The contribution Neill has made in building Ithaca Energy into a material company cannot be overstated. His energy and enthusiasm will be missed. On behalf of the Board of Directors, management and employees of Ithaca, I wish Neill every success in his future career and look forward to working with him on an orderly transition."

Ithaca Energy has organized itself around an Executive Committee, headed by its Chief Executive Officer and acting Chief Operating Officer (Lawrie H. Payne), along with Chief Financial Officer and Chief Corporate Development Officer (Brad G. Gunn), both of whom are on the Board of Directors, Chief Exploration Officer (Nick D. Muir), Chief Development Officer (John Woods), Chief Controller, Rod McKinnon.

The Company is also pleased to announce that it has appointed Mr. Marcus Paige as Commercial Manager. Formerly with Total, Mr. Paige brings over 10 years of North Sea commercial transaction experience to Ithaca. Initially, he will be responsible for negotiating and contracting Ithaca's upstream commercial agreements, working with management to identify new opportunities and drive the Company's strategic growth plans.

Commenting, Lawrie Payne, Chief Executive Officer, said:

"The Company has achieved a number of successes and is well positioned financially to exploit its development and exploration opportunities in the future. Having control of our projects through operatorship, high working interests and financial capability enables the Company to proceed with development and exploration on an accelerated basis which is of paramount significance to shareholder return. I would like to personally wish Neill Carson well in the future. As a founder of the Company, Neill Carson was a fundamental and valued player."



Ithaca Energy Inc.

Consolidated Balance Sheets
(unaudited - all amounts are US$)

June 30, December 31,
2007 2006
ASSETS

Current assets
Cash and cash equivalents $ 31,428,954 $ 51,371,607
Accounts receivable 2,073,269 2,942,882
Deposits, prepaid expenses and other (note 4) 14,630,637 20,274,476
---------------------------------------------------------------------------
48,132,860 74,588,965

Property, plant and equipment (net) (note 5) 68,790,180 40,345,189
---------------------------------------------------------------------------

$ 116,923,040 $ 114,934,154
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable and accrued liabilities $ 7,340,430 $ 7,266,977

Asset retirement obligation 2,402,613 1,513,000

---------------------------------------------------------------------------
$ 9,743,043 8,779,977


Shareholders' equity
Share capital (note 6) 110,756,566 $ 110,782,103
Contributed surplus 1,471,559 883,962
Deficit (5,048,128) (5,511,888)
---------------------------------------------------------------------------
107,179,997 106,154,177

$ 116,923,040 $ 114,934,154
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The accompanying notes to the consolidated financial statements are an
integral part of these statements.



Ithaca Energy Inc.

Consolidated Statement of Net and Comprehensive Profit/(Loss) and Deficit
(unaudited - all amounts are US$)


3 months ended 6 months ended
June 30 June 30
2007 2006 2007 2006

REVENUE $ - $ - $ - $ -

EXPENSES
General and
administrative 1,527,583 967,250 2,250,269 1,731,126
Amortization
and accretion 51,156 14,371 110,054 28,000
Interest income (177,232) (59,964) (525,836) (72,039)
(Gain) Loss on
foreign exchange
Realized (12,677) 8,399 (110,817) 34,052
Unrealized (1,975,771) 43,970 (2,187,430) 45,379
---------------------------------------------------------------------------

NET PROFIT/(LOSS) $ 586,941 $ (974,026) $ 463,760 $(1,766,518)

Deficit, beginning
of period 5,635,069 1,998,045 5,511,888 1,205,553

Deficit, end
of period $ 5,048,128 $ 2,972,071 $ 5,048,128 $ 2,972,071
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Net and
comprehensive
profit/(loss)
per share (basic
and diluted) $ 0.01 $ (0.02) $ 0.01 $ (0.05)
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---------------------------------------------------------------------------



Consolidated Statements of Shareholders' Equity
(unaudited - all amounts are US$)

Contri-
Share buted
Capital Surplus Deficit 2007 Total 2006 Total

Balance,
Janu-
ary 1 $ 110,782,103 $ 883,962 $ (5,511,888) $ 106,154,177 $ 16,920,379
Stock
based
compen-
sation - 587,597 - 587,597 42,400
Issued
for cash 55,665,988
Share
Issue
costs (25,537) (25,537) (3,595,120)
Profit /
(loss)
for the
period - - 463,760 463,760 (1,766,518)
---------------------------------------------------------------------------

Balance,
June 30 $110,756,566 $1,471,559 $(5,048,128) $107,179,997 $67,267,129
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The accompanying notes to the consolidated financial statements are an
integral part of these statements.



Ithaca Energy Inc.

Consolidated Statements of Cash Flow
(unaudited - all amounts are US$)

3 months ended 6 months ended
June 30 June 30
2007 2006 2007 2006

OPERATING
ACTIVITIES:

Net profit /
(loss) $ 586,941 $ (974,026) $ 463,760 $ (1,766,518)
Items not
involving cash:
Stock based
compensation 318,011 - 587,597 42,400
Unrealized
(gain) loss on
foreign
exchange (1,975,771) 43,970 (2,187,430) 45,379
Amortization
and accretion 51,156 14,371 110,054 28,000
---------------------------------------------------------------------------
(1,019,663) (915,685) (1,026,019) (1,650,739)

Changes in
non-cash working
capital relating
to operating
activities: 1,757,471 (17,841,245) 2,677,592 (18,860,591)

---------------------------------------------------------------------------
737,808 (18,756,930) 1,651,573 (20,511,330)

INVESTING
ACTIVITIES:

Oil and
natural gas
properties (27,060,313) (2,193,847) (28,476,046) (3,528,879)
Office
furniture and
equipment (66,850) (2,759) (66,850) (82,611)
Changes in
non-cash working
capital relating
to investing
activities 16,248,684 6,948,670
---------------------------------------------------------------------------
(10,878,479) (2,196,606) (21,594,226) (3,611,490)

FINANCING
ACTIVITIES:

Proceeds from
issuance of
shares - 52,070,869 - 52,070,869
Changes in
non-cash working
capital relating
to financing
activities: - 688,816 - 5,223,214

---------------------------------------------------------------------------
- 52,759,685 - 57,294,083

Increase /
(Decrease) in
cash $(10,140,671) $ 31,806,149 $ (19,942,653) $ 33,171,263
Cash and cash
equivalents,
beginning
of period 41,569,625 5,177,441 51,371,607 3,812,327
---------------------------------------------------------------------------
Cash and cash
equivalents,
end of period $ 31,428,954 $ 36,983,590 $ 31,428,954 $ 36,983,590
---------------------------------------------------------------------------
---------------------------------------------------------------------------

The accompanying notes to the consolidated financial statements are an
integral part of these statements.


Ithaca Energy Inc.

Notes to the Consolidated Financial Statements

Three and six months ended June 30, 2007 (unaudited)

1. Nature of Operations

Ithaca Energy Inc. (the "Corporation" or "Ithaca"), incorporated in Alberta on April 27, 2004 and its wholly-owned subsidiary Ithaca Energy (UK) Ltd., incorporated in Scotland are a publicly traded group of companies involved in the exploration and development of oil and gas in the North Sea. The Corporation's shares are listed on the TSX Venture Exchange in Canada and the London Stock Exchange's AIM in the United Kingdom.

Since May 2004, the Corporation has been evaluating the resource potential of certain oil and natural gas exploration properties and is considered to be in its development stage of operations. The recoverability of amounts shown for oil and natural gas properties is dependent upon the determination of economically recoverable reserves.

2. Significant Accounting Policies

The interim consolidated financial statements of Ithaca Energy Inc. have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim consolidated financial statements have been prepared following the same accounting policies and methods of computation as the consolidated financial statements for the fiscal year ended December 31, 2006, except as noted below. These interim financial statements do not conform in all respects to the requirements of generally accepted accounting principles for annual financial statements. Accordingly, they should be read in conjunction with the consolidated financial statements and the notes thereto in the Corporation's annual report for the year ended December 31, 2006.

3. Change in Accounting Policies

Financial Instruments

On January 1, 2007, the Corporation implemented the Canadian Institute of Chartered Accountants ("CICA") new Handbook sections 3855 "Financial Instruments - Recognition and Measurement", 3865 "Hedges", 1530 "Comprehensive Income", 3251 "Equity" and 3861 "Financial Instruments - Disclosure and Presentation". These standards have been applied without restatement of prior periods.

Section 3855, "Financial Instruments - Recognition and Measurement" establishes guidance for recognizing and measuring financial assets, financial liabilities and non-financial derivatives. All financial instruments must be classified into a defined category, namely, held-for-trading financial assets or financial liabilities, held-to-maturity investments, loans and receivables, available-for-sale financial assets, or other financial liabilities. The standard requires that financial instruments within scope, including derivatives, be included on the Corporation's balance sheet and measured at fair value, except for loans and receivables, held-to-maturity financial assets and other financial liabilities which are measured at cost or amortized cost. Gains and losses on held-for-trading financial assets and financial liabilities are recognized in net earnings in the period in which they arise. Unrealized gains and losses, including changes in foreign exchange rates on available-forsale financial assets are recognized in other comprehensive income until the financial asset is derecognized or impaired, at which time any unrealized gains or losses are recorded in net earnings. Transaction costs other than those related to financial instruments classified as held-for-trading, which are expensed as incurred, are added to the fair value of the financial asset or financial liability on initial recognition and amortized using the effective interest method.

As a result of the implementation of this standard, the Corporation has classified cash and cash equivalents and short term investments as held-for-trading. Accounts receivable are classified as loans and receivables; and investments in equity instruments are classified as available-for-sale. Bank indebtedness, accounts payable and certain accrued liabilities, long term debt and capital lease obligations have been classified as other financial liabilities. The Corporation has not classified any financial assets as held-to-maturity. The remeasurement of financial assets classified as loans and receivables and financial liabilities classified as other liabilities at amortized cost was insignificant.

Non-financial derivatives must be recorded at fair value on the consolidated balance sheet unless they are exempt from derivative treatment based upon expected purchase, sale or usage requirements. All changes in their fair value are recorded in net earnings unless cash flow hedge accounting is applied, in which case changes in fair value are recorded in other comprehensive income. The standard requires embedded derivatives to be separated and fair valued if certain criteria are met. The impact of this change related to non-financial and embedded derivatives was not significant.

Section 3865, "Hedges" replaces Accounting Guideline 13, "Hedging Relationships". The requirements for identification, designation, documentation and assessment of effectiveness of hedging relationships remain substantially unchanged. Section 3865 addresses the accounting treatment of qualifying hedging relationships and the necessary disclosures and also requires all derivatives in hedging relationships to be recorded at fair value. The Corporation does not have any qualifying hedging relationships and therefore the adoption of this change had no impact on the Corporation.

Section 1530, "Comprehensive Income" introduces a statement of comprehensive income, which is comprised of net earnings and other comprehensive income. Other comprehensive income represents the change in shareholders' equity from transactions and other events from non-owner sources and includes unrealized gains and losses on financial assets that are classified as available-for-sale, and changes in the fair value of the effective portion of cash flow hedging instruments. The Corporation does not have any qualifying hedging relationships or financial assets that are classified as available-for-sale and therefore the adoption of this change had no impact on the Corporation.

Section 3251, "Equity", which replaced Section 3250, "Surplus", establishes standards for the presentation of equity and changes in equity during the reporting period and requires the Corporation to present separately equity components and changes in equity arising from i) net earnings; ii) other comprehensive income; iii) other changes in retained earnings; iv) changes in contributed surplus; v) changes in share capital; and vi) changes in reserves. New consolidated statements of changes in shareholders' equity are included in the unaudited interim period consolidated financial statements.

Section 3861, "Financial Instruments - Disclosure and Presentation", which replaces Section 3860, of the same name, establishes standards for presentation of financial instruments and non-financial derivatives, and identifies the information that should be disclosed about them.

4. Deposits, prepaid expenses and other

A deposit for the hire of a drilling rig amounting to $9,000,000 is included in deposits, prepaid expenses and other.



5. Property, plant and equipment

June 30, 2007 December 31, 2006
--------------------------------------

Oil and natural gas properties $ 68,641,791 $ 40,165,229
Office furniture and equipment 278,721 256,251
Less accumulated amortization (130,332) (76,291)
--------------------------------------

$ 68,790,180 $ 40,345,189
--------------------------------------
--------------------------------------

All oil and gas properties are in the development phase and are not
currently subject to depletion or amortization.

6.Share Capital

(i) Common Shares
Changes to issued common shares were as follows:

2007 2006
Number of Amount Number of Amount
Shares Shares

Balance at January 1 82,904,475 $ 110,782,103 26,798,556 $ 18,009,562
Issued on exercise of - - 5,555,555 -
special units
Issued for cash 29,571,929 55,665,988
Share issue costs $ (25,537) - $ (3,595,120)
-----------------------------------------------------

Balance at June 30 82,904,475 $ 110,756,566 61,926,040 $ 70,080,430
-----------------------------------------------------


(ii) Options

The Corporation has a stock option plan, approved by shareholders April 12, 2006, for directors, officers, employees and consultants which provide for the granting of options to acquire common shares. The following table shows the movement in the number of options outstanding in the period



Exercise Price of Exercised or
Option Outstanding at Dec. Granted or (Cancelled) Expired
31, 2006
US$0.90 1,300,000 - -
US$0.90 100,000 - -
US$0.90 100,000 - -
US$0.90 400,000 - -
CAD$2.32 2,102,500 - -
CAD$2.32 400,000 -
CAD$2.51 1,805,000

Exercise Price of Outstanding at Vested at Jun. 30, Expiry
Option Jun 30, 2007 2007 Date

US$0.90 1,300,000 1,300,000 11-Oct-08
US$0.90 100,000 100,000 18-Nov-08
US$0.90 100,000 100,000 18-Feb-09
US$0.90 400,000 400,000 27-Feb-09
CAD$2.32 2,102,500 1,051,250 18-Aug-09
CAD$2.32 400,000 200,000 25-Jan-09
CAD$2.51 1,805,000 - 17-May-11


During the quarter the Corporation granted 1,805,000 share options, exercisable at $2.51 per share. One third of these options will vest at the end of each of the first, second and third years from the effective date. The Corporation recorded a stock based compensation charge of $155,050 relating to these options. In addition the Corporation continued to recognize the expense of previously issued share options over their vesting period. The assumptions used in the calculation of the cost of the new options were as follows:



Exercise Price $2.51
Stock Price $2.51
Interest rate 4.35%
Dividend yield 0
Volatility 62%


MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION

The following is management's discussion and analysis ("MD&A") of the operating and financial results of Ithaca Energy Inc. (the "Corporation" or "Ithaca") for the three and six months ended June 30, 2007. The information is provided as of August 20, 2007. The 2007 results have been compared to the results for the comparative period in 2006. All figures and the comparative figures contained herein are expressed in US dollars unless otherwise stated.

This discussion and analysis should be read in conjunction with the Corporation's unaudited consolidated financial statements as at June 30, 2007 and 2006 and for each of the three month periods then ended, together with the accompanying notes. These documents and additional information about Ithaca Energy Inc. are available on SEDAR at www.sedar.com.

Certain statements contained in this discussion and analysis, including estimates of reserves, estimates of future cash flows and estimates of future production as well as other statements about anticipated future events or results, are forward-looking statements. Forward-looking statements often, but not always, are identified by the use of words such as "seek", "anticipate", "believe", "plan", "estimate", "expect" "targeting" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions. The forward-looking statements that are contained in this discussion and analysis involve a number of risks and uncertainties. As a consequence, actual results might differ materially from results forecast or suggested in these forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.

BUSINESS OF THE CORPORATION

Ithaca Energy is an oil and gas exploration and development corporation active in the United Kingdom's Continental Shelf ("UKCS"). Exploration and development activities are focused on the Inner and Outer Moray Firth, the Central and Southern Gas Basin areas of the UKCS. The goal of Ithaca Energy in the near term is to achieve oil production from the development of existing discoveries on licences held by the Corporation, to originate and participate in exploration on licences held by the Corporation with the potential to make significant contributions to future production, and to consider other opportunities for growth as they are presented to the Corporation. The Corporation is targeting first oil production from its 90% owned Jacky (Basil discovery) field to commence in 2008 and oil production from its 70% owned Athena field and first gas from its 20% (6.7% expected unitization) interest in the Barbara gas field to commence in 2009.

OVERALL PERFORMANCE

The Corporation has continued with the evaluation and exploration of the portfolio of UK oil and gas properties. The Corporation completed an exploration well, the Basil 12/21c-6 well located in the Inner Moray Firth area, as an oil well and was suspended for future re-entry and production. Other activities in the quarter were the continued progress of the Corporation's Athena project which was drilled in 2006, progress on the Barbara discovery and additional geological and geophysical processing work on 3D seismic shot in 2006 over the Corporation's Morpheus and Triton prospects.

In September 2006, Ithaca Energy secured the GSF Galaxy II jack-up drilling rig for two wells to be drilled in 2007 and the Byford Dolphin semi-submersible drilling rig for its next well on Athena. The first well to be drilled by the GSF Galaxy II was the Basil 12/21c-6 well drilled in April 2007. The second well is scheduled for the fourth quarter.

Ithaca Energy's primary focus for the remainder of 2007 will be the appraisal and development of its 70% owned Athena oil field and pre-field development plan work on its 90% owned Jacky field (Basil oil discovery). In addition, the Corporation will continue its UK North Sea exploration and appraisal drilling program on its Carna, and Manuel prospects subject to rig availability and securing partner participation. Exploration drilling on the Morpheus prospect will be undertaken after processing of the recently acquired 3D seismic. To complete its 2007 development, appraisal, and exploration program, the Corporation has set a capital budget of 4 wells and $55 million.

Ithaca Energy has been able to execute its business plan for the UK North Sea in large part by its ability to access capital through the issuance of equity. Significant capital, beyond current resources, will be required to further the Corporation's anticipated development activities in 2008.

SUMMARY OF QUARTERLY RESULTS

The consolidated financial statements of the Corporation and the financial data contained in MD&A are prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The consolidated financial statements include the accounts of Ithaca Energy Inc. and its wholly-owned subsidiary Ithaca Energy (UK) Limited. All inter-company transactions and balances have been eliminated on consolidation. Part of the Corporation's North Sea oil and gas activities are carried out jointly with others, and the consolidated financial statements reflect only the Corporation's proportionate interest in such activities.

The Corporation's reporting currency is US dollars ("$"); unless indicated otherwise, all amounts are presented in US dollars. The accounting records of the Corporation's foreign subsidiary are maintained in US dollars.



30-Jun-07 31-Mar-07 31-Dec-06 30-Sep-06
REVENUE $ - $ - $ - $ -

COSTS AND
EXPENSES
General and
administrative 1,527,584 722,685 1,270,355 1,339,445
Depreciation
and accretion 51,156 58,898 27,769 14,000
Interest income (177,232) (348,604) (729,228) (374,925)
(Gain) Loss on
foreign exchange (1,988,448) (309,798) 653,522 338,879
---------------------------------------------------------------------------

NET PROFIT / (LOSS) 586,940 (123,181) (1,222,418) (1,317,399)

NET PROFIT / (LOSS)
PER SHARE 0.01 0.00 (0.03) (0.02)


REVENUE

30-Jun-06 31-Mar-06 31-Dec-05 30-Sep-05
$ - $ - $ - $ -

COSTS AND EXPENSES
General and
administrative 967,250 763,876 494,692 242,254

Depreciation and
accretion 14,371 13,629 2,914 1,125
Interest income (59,964) (12,075) (23,656) (1,822)
(Gain) Loss on
foreign exchange 52,369 27,062 (3,661) (20,562)
---------------------------------------------------------------------------


NET PROFIT / (LOSS) (974,026) (792,492) (470,289) (220,995)

NET PROFIT / (LOSS)
PER SHARE (0.02) (0.03) (0.02) (0.02)


RESULTS OF OPERATIONS

The Corporation has had no revenue from operations to date. For the three month period ended June 30, 2007, the Corporation had a net profit of $586,940 compared to a net loss of $974,026 for the three month period ended June 30, 2006. For the six month period ended June 30, 2007, the Corporation had a net profit of $463,759 compared to a net loss of $1,766,518 for the six month period ended June 30, 2006. This profit is due to interest earned and foreign exchange gains made on unspent funds that the Corporation raised during 2006.

General and administrative expenses for the three month period ended June 30, 2007 were $1,527,584 compared to $967,250 for the three month period ended June 30, 2006. General and administrative expenses for six months ended June 30, 2007 were $2,250,269 compared to $1,731,126 for the six months ended June 30, 2006. The results include the Corporation's increased evaluation, acquisition and exploration activity in the UK North Sea, which is offset by the capitalization of certain costs related to exploration, appraisal and development activities. Costs capitalized in the three months ended June 30, 2007 amounted to $1,110,792 (2006 - $nil). Costs capitalized in the six months ended June 30, 2007 amounted to $1,824,879 (2006 - $nil). The Corporation has been steadily increasing operations, and this has resulted in an increase in payroll and other administration costs.

The Corporation continued to issue stock options during the period as its share equity base expanded and as it added new employees. The Corporation issued stock options to Directors and employees in May 2007, which together with the charge arising from the vesting of options issued in August 2006 and January 2007, resulted in a stock based compensation charge for the three months ended June 30, 2007 of $318,011 and the charge for the three months ended June 30, 2006 was $nil, the stock based compensation charge for the six months ended June 30, 2007 was $587,597 and for the six months ended June 30, 2006 was $42,400. Stock-based compensation expense is not expected to increase as rapidly in 2007 as in prior years.

Interest income in the periods resulted from interest on bank accounts and short-term deposits, as the Corporation had cash balances due to funds raised. The income is significantly higher in the first quarter of 2007 than in the first quarter of 2006 as the Corporation was able to invest a portion of the funds raised in the initial public offering and the offering completed in December 2006. The Corporation holds the majority of its cash reserves in currencies other than the US$, and is therefore exposed to losses arising from exchange rate fluctuations.

Amortization and accretion for the three month period ended June 30, 2007 has increased to $51,156 (2006 - $14,371) and amortization and accretion for the six month period ended June 30, 2007 has increased to $110,054 (2006 - $28,000) primarily as a result of an accretion charge relating to the asset retirement obligation recognized for the Athena well drilled in October 2006. The Corporation has an ongoing drilling plan for 2007 and therefore the accretion expense is expected to increase over the remainder of the year.

LIQUIDITY AND CAPITAL RESOURCES

Total cash inflow from financing activities in the three months ended June 30, 2007 was $nil (2006 - $52,070,868) as the Corporation has sufficient cash resources available to fund all activities currently planned for the short to medium term.

During the three months ended June 30, 2007 there was a cash outflow from operating and investing activities of $10,140,671 compared to a cash outflow from operating and investing activities of $20,953,536 for the corresponding period in 2006.

The Corporation's prospects are dependent upon the investment of significant capital sums into its development and exploration projects. With the capital raised pursuant to the offerings and the UK Placings, management believes that the Corporation will be able to exploit opportunities in its existing portfolio, and also to pursue new ventures that are consistent with its business plan. The Corporation expects to continue to develop the existing licences held and to acquire new licences through participation in future licensing rounds and farm-ins from third parties.

Additions (net of recharges to partners) to oil and gas properties in the period are summarized as follows:



Three months ended Six months ended
June 30, 2007 June 30, 2007

Outer Moray Firth $ 2,151,654 $ 3,096,434

Inner Moray Firth 24,275,251 24,566,619

Central North Sea 84,693 431,091

Southern North Sea 548,715 381,203

-----------------------------------------------------------
Total $ 27,060,313 $ 28,475,347

-----------------------------------------------------------


RISKS AND UNCERTAINTIES

The business of exploring for, developing and producing oil and natural gas reserves is inherently risky. There is substantial risk that the manpower and capital employed may not result in the finding of new reserves in economic quantities. There is a risk that the sale of reserves may be delayed indefinitely due to processing constraints, lack of pipeline capacity or lack of markets. The price the Corporation will receive for its oil and natural gas production may fluctuate continuously and, for the most part, is beyond the Corporation's control.

The Corporation is exposed to financial risks including fluctuation in interest rates and various foreign exchange rates. The Corporation is also subject to the risks associated with owning oil and natural gas properties, including environmental risks associated with air, land and water. In all areas of our business, we compete against entities that may have greater technical and financial resources. The Corporation's growth will be dependent upon external sources of financing which may not be available on acceptable terms. There are numerous uncertainties in estimating the Corporation's reserve base due to the complexities in estimating the magnitude and timing of future production, revenue, expenses and capital.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

There have no changes in the Corporation's internal control over financial reporting that occurred during the three months ended June 30, 2007 or the six months ended June 30, 2007 that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting

OUTSTANDING SHARE INFORMATION

As of August 17, 2007, there are 84,304,475 common shares of the Corporation outstanding and 89,111,975 common shares diluted. There are 4,807,500 options to purchase common shares outstanding.

Forward-looking statements

Some of the statements in this announcement are forward-looking. Forward-looking statements include statements regarding the intent, belief and current expectations of Ithaca Energy Inc. or its officers with respect to various matters. When used in this announcement, the words "expects," "believes," "anticipates," "plans," "may," "will," "should" and similar expressions, and the negatives thereof, are intended to identify forward-looking statements. Such statements are not promises or guarantees, and are subject to risks and uncertainties that could cause actual outcome to differ materially from those suggested by any such statements. These forward-looking statements speak only as of the date of this announcement. Ithaca Energy Inc. expressly disclaims any obligation or undertaking to release publicly any updates.

In accordance with AIM Guidelines, Lawrie Payne, MA Marine Geology (Alberta & Columbia) and CEO of Ithaca Energy is the qualified person that has reviewed the technical information contained in this press release.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this news release.

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